Remember when you were a kid, and you had carefree Summer days stretching out before you?
Those Were the Days My Friend and they are here again with a totally exciting new Tax Bill.
There is comfort, as always, in the familiar. And nothing is more familiar (and predictable) as a new Tax Bill. Exciting. Read more …
Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Bill
At 177 pages, we are guaranteed a good read.
Core taxation rates – the annual income tax rates are not changing and are here reconfirmed. Just in case you missed it, the top tax rate is now 39% if your personal taxable income exceeds $180,000.
GST – Cryptoassets finally get their own rules. At present, the supply of a cryptoassets could be subject to GST at 15%, an exempt financial service, or a zero-rated supply to a non-resident. This Bill tries to resolve the problem by backdating (from 1 January 2009) cryptoassets as being excluded from the definitions of “Goods” and “Services”. Although, just to confuse us this definition excludes non-fungible tokens (“NFT”), which will remain subject to GST if supplied by a registered person. The Bill helpful tells us that cryptoassets must be “fungible” and NFT’s “certify a digital asset to be unique and are not interchangeable. They are generally used to represent items such as photos or videos and can be owned or traded using a blockchain.” Thanks, that’s very helpful. FYI – “fungible” means (Adj) “(of goods contracted for without an individual specimen being specified) replaceable by another identical item; mutually interchangeable.”
The Bill offers an example of why this change is required, where “Lucy” buys bitcoin and using it to buy a vehicle incurs GST twice. [Is it just me, or does the name “Lucy” remind you of the first known human ancestor? Lucy (Australopithecus) – Wikipedia]
GST and Capital Raising costs – capital raising costs are deductible for GST (since 2017) but now will include where the capital raising is via issuing cryptoassets.
Cryptoassets will be “excluded financial arrangements” for income tax purposes, but note that income derived from selling, trading and exchanging them will still be subject to income tax (and losses deductible).
Disposal of Mixed Use assets for GST purposes. Some changes here (backdated to 24 February 2020) to allow for higher adjustments on input claims. Focus is on appreciating assets where the GST payable is significantly more than the GST claimable. This is a new strange wee rule that allows a higher GST claim on the balance of the asset than was originally paid based on the percentage of non-GST activity allocation. Still, we always accept changes that are positive for our clients. Property developers will be excluded from this rule.
GST and zero-rating for international export of goods. A welcome change that will encompass sub-contractors in the chain of supply by removing the necessity to have one supplier. Similar rules will change for international suppliers supplying to New Zealand resident using internal sub-contractors.
OTHER CHANGES
Covid sharing information between Government agencies will no longer have an end date with the repeal of the original 24 month sunset clause.
Electronic sales suppression tools within the New Zealand tax base will attract criminal penalties for the manufacture or distribution of suppression tools, and criminal and civil penalties for the acquisition or possession of suppression tools. “Electronic sales suppression tools are software programs, devices, or other tools that systematically alter point-of-sale data collected by a business to understate or completely conceal revenues, which facilitates tax evasion.” Who knew?
Local Authority tax changes. Intended to eliminate income tax from Council Controlled Dividends, reducing tax deductions for donations to charities and donee organisations, apportioning other tax deductions depending on where the borrowed funds are applied, and changes to imputation current accounts (including grouping). These changes would apply from the 2022 – 2023 tax year.
Foreign Currency Hedges – adjusting and correcting mismatches for those who hedge and report under the Fair Dividend Rate.
Tax Pooling – allowing tax pooling schemes to pay for tax arising in voluntary disclosure situations where no existing tax liability already exists. A welcome move.
GST remedials
As we often say, pass legislation in haste and remediate at the Government’s leisure. To be fair, some are merely updating the rules to the 2021 climate, but others are correcting blatant errors in original drafting, some going back years.
Changes to tax invoice requirements, including buyer created invoices.
GST – incorrectly claiming second-hand good, where the sale was zero-rated. The change will allow the adjustment when they become aware of the error and not the period of the original claim.
GST – incorrectly zero-rated transaction, where the purchaser must account for GST. The change will allow the adjustment when they become aware of the error and not the period of the original transaction.
GST – incorrectly zero-rated transaction, when the transaction is outside the GST net. Currently the purchaser cannot claim a second-hand good, this change will enable them to do so.
GST claim for second-hand goods purchased from an associate. Some of you may know that you cannot claim GST, or have a reduced claim for GST, if purchased from a non-registered associate. A proposed change will allow the purchaser to look behind the chain of vendors for a GST claim. A really good change to the law here.
GST changes on group registrations
INCOME TAX
Bright-line – changes to acknowledge that it may take longer than 12 months to build and move into a new property. Provided active steps are being taken on the build, the build time will be included as part of living in the property and included in the Family Home exclusion.
Bright-line – Main Home exclusion cannot be used where the taxpayer has already used it twice in two years, including when calculating the periods living in and not living in the property for third and subsequent claims during the two year period.
Bright-line (again) – Main Home exclusion of (new) multiple periods of less than 12 months of not living in the property. “The policy intent is that a person can qualify for the main home exclusion regardless of how many periods they do not satisfy the main home criteria, provided no individual period exceeds 12 months.” However, the rule will remain that the person must live in the property immediately before the absence period or immediately after the absence period, and (new clarification) two or more absence periods cannot back to back each other.
Depreciation on buildings acquired from associates when the rate was 0%. Purchasers will be entitled to depreciation on non-residential buildings (even if acquired from an associate who was required to use a 0% depreciation rate at the time).
Foreign currency gains are “residential income” if the loan is used to finance residential property based overseas (the interest deductions or losses on currency are treated as residential expenditure subject to ring-fencing or non-deduction of interest, if the proposal on non-deduction of interest expenditure is passed).
More Tax Pooling adjustments – allowing better access to mitigate Use of Money Interest (first year provisional taxpayers), purchased funds can be used for Early Payment Discounts, extending the definition of small-business person to include Look Through Companies.
Economic Group debt remission / forgiveness – changes to remove the word “forgiveness” as it is intended to include other forms of remission. The forgiveness/remission effectively increases the Available Subscribed Capital in the company! Extending the rules to New Zealand branches of overseas entities provided they have a “fixed establishment” in New Zealand (other rules required to be met, including no deduction for the remission by the creditor).
ESCT rate dropped to flat rate of 33% – employer superannuation contribution tax (ESCT) was pushed to 39% for continued contribution for former employees due to recent tax rate changes. The Government acknowledges this is likely to be too high, so will reduce it to a flat rate of 33%.
Use of Money Interest – relief to some taxpayers from UOMI in some circumstances and may include classes of taxpayers as set by Order in Council – Covid-19 specific.
Non-Active Estates – able to apply for non-filing status.
Disputes and challenge rights – some strange variations to the rules here that (a) prevent taxpayers disputing or challenging some decisions, and (b) others not requiring the Commissioner to issue challenge notices (where the Commissioner accepts some changes requested, and issues an amended notice, but doesn’t accept others).
Fax – dead as the Moa and no longer able to be used to contact the Commissioner (they kept on forgetting to put paper in the machine).
R & D Tax credits – some changes to application dates, supplementary expenditure claim dates and other miscellaneous changes. If you are claiming R & D tax credits, have a read of the commentary from page 156.
The above is really just a sample of what we think you will be interested in. There is much much more in its 177 pages. Knock yourself out in reading the lot here. The Bill is shorter at 122 pages.
And yet, we feel something is missing. Aha! This Tax Bill does not include the Government’s non-deduction/winding down of interest for residential rentals. Given this was intended to take effect on 1 October 2021 it appears a bit remiss to exclude it. Still, we have every confidence the Government will add it as a supplementary in due course.
As always, we here at Shellock are happy to steer you through the wonderfully interesting tax world. If you need some help, contact us at [email protected]. FYI, the caption photo is from tulips picked from Anne’s wild garden in the backyard and sitting pretty in the office.
